Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

If the homeowner sells there’s not enough cash for a new downpayment. Maybe not enough cash for moving expenses and a rental deposit. This has ugly consequences for job mobility, and it may explain a component of our long-term unemployment problem.

Note that one needs 7 to 8% for the fees assesed to sell a property, including the real estate commission, title insurance and the like. So one way to put it is how much equity do you need to be able not to bring a check to the closing? Of course by this metric everytime you buy a house you are underwater for a while, just like with autos when you drive a new car off the lot you are underwater in many cases.

A deeper exploration of where previous equity has gone might be a better gauge of how to bring it back.

In effect, home prices were inflated with artificial demand by pawning sub-primes en masse, those loans were sold off as “triple A” assets, and TBTF’s shorted them without disclosure under protection by the CFMA as derivatives.

A middle class now worth 30% to 40% less than it was in 2007 isn’t going to be able to reverse negative equity without wage growth, much less increase demand to 2007 levels, low rates are only staving the fiscal effects of 2008, keeping heads above water, barely.

Here in my hometown of suburban Cincinnati, we don’t get severe price swings. A few folks who had to move in 2008 took a hit and some crazies who bought with nothing down in 2006 sent in some jingle mail. But now, demand is back in pricing is firming, at least in the sub $500K arena. There is plenty of inventory in the $1mm plus market of Indian Hill however.

If the Fed is the only reason equity prices are rising (in light of lack of wage growth since 2008), and homeowners use equity in an attempt to consume, we might be in the midst of a third repeat of what’s happened over the last 12 years.

This would go hand-in-hand with BR’s blog last week on secular bear/bulls from a pure chart view (as well as last months assertion we have a 20% fall coming within 18 months)…and the possibility we have a few more years, another leg down to go in this bear.

Let’s not forget, although consumers are deleveraging, we’re still at historic highs for consumer debt to income, we’re in frail territory, one stupid move from D.C., T rates stat falling or a relapse in home prices is all it might take for a repeat of 2002 & 2009.

The extreme end of the GOP will fight tooth and nail before allowing any further stimulus, to the extent the damages incurred could be substantial before they saw any writing on the wall.

Yes ” Real estate always go up in the long term”…where have I heard that before?
Sooooo..the market is flat with the lowest rates in 50 years? Where were prices be when this
rate “permanent bottom” starts rising? I think I will continue to keep my powder dry thanks…..

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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